Fix the housing market and you’ll fix the economy

It seems obvious. Fix the housing market and we fix a huge piece of the UK economy. The latest round of useless data has been published. I am not a fan of how it is interpreted by the media but I am in favour of fixing a market that is broken. I don’t advocate a return to massive house price rises but your investment should, at least, be keeping pace with inflation. Chances are it isn’t and that’s a problem.

Inflation remains steady at 4.5% and the better measure if you are a homeowner is RPI that remains at 5.2%. We certainly don’t have anything like that return in the housing market and it’s time for action. I have been lucky enough to interview the housing minister, Grant Shapps, the MP for Welwyn Hatfield on my LBC Radio Show. He knows action is required. So far, the government has done little to assist the market. I am not a fan of intervention but that’s what is required.
First of all. Stamp Duty must go. Or at least be reduced to 1%. It is an attack on capital and worse than that in a stagnant market it prevents people from moving freely from one home to the next. When people move they spend. It would be a significant boost to the economy to encourage people to move as and when they wish. The biggest problem in the market at the moment isn’t really pricing. It’s a lack of sales and purchases.
But that’s not all. The retail banks are behaving appallingly. People on mortgages are being taken to the cleaners whilst new borrowers or people remortgaging are having a torrid time. It is time to bring back MIRAS. Mortgage relief on mortgage payments. Not to encourage buy to let investors. Just for your primary residence. And only if you live there. In addition to that we need a savings plan that, in addition to ISA’s , provides a tax-free method of saving for a deposit. I was never a fan of 100% mortgages and it’s right that we should encourage sensible lending. If that’s the case then those who make the effort to save should be assisted and encouraged to do so.
But there is more. Banks. Retail banks in particular need to play their part. Personally I think there is room for two new mortgage products. The first one would be a 5, 10 or maybe 15 year fixed rate. That length of money is available in the money markets, so why not extend certainty to borrowers? I’d be prepared to lock into a slightly higher rate of interest if I knew my payments would be fixed for a period of time. All this messing about with two and three year deals is not only expensive for the consumer it’s also very unsettling.
And there’s another idea I have too. The principle of lending is not only based on asset value paying off the debt should the borrower default but also on affordability. Banks have lent money to first time buyers. They perceive them as a risky prospect and ask for a higher rate of interest. As first time buyers often borrow a larger amount, compared to the value of the property they get stung again. The higher the rate of interest the more difficult to service that debt. So the cycle begins. It’s unfair too. So. Why not have a mortgage made up of two elements? Up to 50% loan to value could be at a very low rate of interest reflecting the low risk of that loan (are housing prices really likely to drop by more than 50%? No…) and then have a higher rate of interest for the other piece of the loan – up to say 90%. That means the borrower will see the cost of their debt come down and also banks would reduce the risk of a large bulk of their loan.
When times get tough government must act with policies that help. Lenders must act responsibly. In my view the government has been slow to act on planning, development, tax incentives and other measures to get the market moving. Meanwhile lenders have been greedy, slow, intransigent and stubborn in respect of offering the right products to their customers.
Meanwhile we have a market that is sluggish and homeowners are confused. Action is required. The time for that action is now.

I am an Estate Agent of 24 years. Please accept that I am not a scholar and accept my grass roots opinion.

When people mention plans to encourage the market, people jump on the bandwagon with such comments as do we (Government) want to encourage the housing market to soar and prices to rise. But you should not assume those in the industry want prices to rise. The problem with the market at the moment is that there is no volume in it, too few transactions. Exactly as James says.

In actual fact, we at the ground level are actually experiencing great surges in prices in some pricing sectors (around stamp duty), right now. There are shortages of some kinds of property on the market. For example in my area, there is a shortage of small affordable houses. The reason is that the vendors living in these houses cannot afford to move up market. So they stay put and extend if they can, or get by. Frequently the highest cost in moving for these vendors is Stamp Duty. So the Stamp Duty burdon is preventing people moving. This leads to shortages of stock, which leads to price rises.

If stamp duty was abolished across the board, this may assist in increasing the volume of people moving.

At the moment we are at a stalemate.

The more people that decide to sell may well likely have the opposite effect. The more property that is for sale in the market, would keep prices down, not up.

The problem is the treasury grew very used to the Stamp Duty receipts and the Treasury is desperate for cash.

This would make interesting reading. The slump in the number of tranactions is hurting far more than the housing market as you all know.

I read all the time about the finacial benefits of a strong housing market. In most cases I agree. But it depends what you mean by, ‘strong’. I say we need a housing market with a volume of sales. This will get us out of the doldrums.

As an estate agent also with 24 years experience, I think James has got it right with his points above. It’s time to lower stamp duty back down to 1% to get this market moving again. The economy as a whole would benefit hugely from increased volumes of sales.

I’m a former Estate Agent and whilst I agree that Stamp Duty should be scrapped from purchases of a principle residence it should remain for investment purchases.

My personal view on this is that it would be fairer to replace Stamp Duty with CGT for principle residences – why should a purchaser pay for some else’s Capital Gain? I think it’s important that housing should primarily be regarded as a place to live and whilst we should be encouraged to make improvements to our home with lower VAT, we should expect to pay CGT for increases in capital value to avoid people abusing the system. Alternatively all property related taxes could be replaced with a Land Value Tax – I disagree with James’ comment that “your investment [property] should, at least, be keeping pace with inflation” – if people invest in property for a capital return they should be prepared for falls also. However I think it is outrageous that more saving accounts are not index-linked.

I also disagree with James that the biggest problem is Stamp Duty – the biggest problem is affordability and until that is restored the market will not be “fixed”.

The banks are at long last being sensible – I think a 10% deposit is reasonable – although I can see why many lenders are requiring 25% as property is still ridiculously over-valued due to Shared Equity, ever-increasing Housing Benefit, self-cert and 100% mortgages of the past – they can see that prices are likely to fall. The Government should stop interfering with the market with “HomeBuy” and similar shared-equity schemes, or by removing Stamp Duty, in a desperate attempt to prop up prices… the market should be left to freely adjust. Nor should First Time Buyers be tempted into an over-valued market – it is irresponsible of the Government to encourage them – rather than watch their equity we wiped away they would be sensible to place any money they have saved in an NS&I tax-free interest-linked savings account and wait for market conditions and affordability to improve.